MANILA: The Philippine central bank cut its key interest rate on Thursday to shield the economy from the impact of the spreading coronavirus, adding it was prepared to loosen policy further to protect growth.
The central bank lowered the rate on its overnight reverse repurchase facility by 25 basis points to 3.75%, the fourth such move since it began reversing policy rate hikes in 2018 to bolster the economy.
“The manageable inflation environment allowed room for a preemptive reduction in the policy rate to support market confidence,” Bangko Sentral ng Pilipinas governor Benjamin Diokno told a news conference.
Nine of 11 economists in a poll had expected the central bank to resume cutting interest rates on Thursday after keeping them on hold at its last two meetings.
The Philippines is bracing for the economic fallout from the coronavirus outbreak which has prompted various governments to impose travel and trade restrictions.
The epidemic has killed 563 people, including a 44-year-old Chinese man in the Philippines, the first fatality outside of China, prompting tighter travel restrictions for both Filipinos and foreigners.
More easing ahead
ING Economist Nicholas Mapa said the central bank will follow up with another rate cut, possibly at its meeting in May.
“The still-benign inflation outlook affords the central bank scope to continue easing monetary policy,” Mapa said in a note.
Diokno estimated the virus outbreak could shave up to 2 percentage points off first quarter growth and 4 percentage points off second quarter growth.
The government has set a 6.5%-7.5% growth target for the year.
Diokno said on Thursday he remained committed to reducing policy rates by 50 basis points this year.
Earlier on Thursday, India’s central bank kept rates on hold but worries about the economic impact of the coronavirus outbreak has raised the chances of further monetary loosening across the region this year.
Although this year’s inflation estimate was raised to 3.0% from 2.9% forecast in December, the forecast remains well inside the central bank’s 2%-4% target range for this year and next. Next year’s inflation estimate was kept at 2.9%.
“We think the BSP still has enough policy space left to inject more stimulus should the need warrant it,” Robert Dan Roces, economist at Security Bank, said in a note.
The peso closed at 50.78 to the dollar on Thursday, firmer than the previous day’s close of 50.92.
Cooling price pressures had allowed the central bank to slash rates by a total 75 bps last year to support growth, which slid to an eight-year low of 5.9% in 2019, missing the low-end of the government’s 6.0%-6.5% expansion target.
It also cut banks’ reserve requirement ratio (RRR) by a total 400 bps last year to 14%.
Both Mapa and Roces say the central bank will be in no hurry to reduce RRR given that recent cuts have not translated to bank lending activity.
The central bank’s next meeting is on March 19. – Feb 6, 2020, Reuters
